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Russia Interventions Top $4 Billion as Oil Drop Worsens Rout

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IMAGE: Elvira Nabiullina, Russian Central Bank Governor Nominee »


Russia’s currency interventions exceeded $4 billion last week as falling oil prices exacerbated the ruble’s longest rout in seven months.

The central bank spent $866 million of foreign currency on Oct. 9, according to data on its website today. Oil, which along with natural gas contributes almost half of Russia’s revenue, lost 4.4 percent in the U.S. last week, the largest weekly slide since January.

The ruble has fallen for five weeks against the dollar, the longest stretch of losses since Russia’s annexation of Ukraine’s Crimea peninsula in March. Wagers for interest-rate increases soared to a six-year high on Oct. 10 on bets the central bank will raise borrowing costs to shore up the currency amid a domestic dollar and euro shortage triggered by sanctions over Ukraine.

“The main driver for the ruble right now is the oil price,” Dmitry Polevoy, chief economist for Russia at ING Groep NV, said in e-an e-mailed note. Crude’s decline “totally eclipses” the “reassuring news” that Russia announced it was pulling back forces from Ukraine’s borders, he said.

President Vladimir Putin ordered Russian forces to withdraw from Ukraine’s border on Oct. 11. About 17,600 soldiers, who were on drills since the summer in the Rostov region, are to be redeployed at their permanent bases, according to a statement on the Kremlin’s website. Ukraine, the U.S. and the European Union accuse Russia of providing weapons, financing and troops to separatists in the nation’s east, an allegation Moscow denies.

Band Raised

Brent tumbled 1.8 percent to $88.56 per barrel in London today, the lowest level on a closing basis since November 2010.

The central bank, which releases the amount of its interventions with a two-day lag, said it moved the upper band of its target dollar-euro basket by 25 kopeks to 45.25 on Oct. 10. It probably sold about $2 billion in the currency market that day as the ruble weakened further past 40 per dollar, according to estimates by Alfa Bank.

The ruble weakened 0.2 percent versus the basket to 45.1622 by 10:34 a.m. in Moscow. It was little changed at 40.3140 per dollar. Trading pushed forward-rate agreements up more than 100 basis points last week to 168 points, the biggest bets for interest-rate increases since October 2008.

Central bank Governor Elvira Nabiullina has raised the key interest rate by 250 basis points since March to support Russian assets as the conflict in Ukraine curbed investor appetite for the ruble, stocks and bonds. Policy makers refrained from raising rates last month as they juggle above-target inflation with an economy teetering near recession.

Triple Challenge

“We see the current environment placing a triple challenge before the central bank: accelerating inflation, fast ruble devaluation and weak economic growth,” Vladimir Miklashevsky, a strategist at Danske Bank A/S, wrote in an e-mailed note. “This may result in a 100 basis-point interest rate increase at the end of this month.”

Multiple rounds of U.S. and European Union sanctions on companies and individuals blocked their access to western debt markets as they contend with the almost $55 billion of debt the central bank estimates is maturing through December.

Article Credit: BBC

Updated 4 Years ago

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Tags:     Dmitry Polevoy     President Vladimir Putin     Ukraine     European Union     Russia     Alfa Bank     Elvira Nabiullina     Vladimir Miklashevsky